BASF Q3 2012 Earnings Call Summary

BASF 3rd Quarter 2012 Analyst Conference Call
October 25, 2012, 11:00 (CEST)
Ludwigshafen, Germany

Analyst Conference Call Script
Kurt Bock
Hans-Ulrich Engel

The spoken word applies.

rd
BASF 3 Quarter 2012 Analyst Conference Call October 25, 2012

rd

Kurt Bock

Ladies and Gentlemen, good morning and thank you for joining us.

[Chart 3: BASF maintains good business performance]

 Times continue to be demanding. Uncertainty remains high and
we have not seen any improvement in global business sentiment.
The European sovereign debt crisis and an economic weakening
in China continued to dominate the headlines. In the third quarter,
China showed once more a lower growth, which did not come as
a surprise given the sluggish demand for chemicals we have seen
since end of last year. Let me now show you how BASF has
performed in this challenging environment.

 All in all, our business held up well in Q3 – thanks to our
diversified portfolio. We generated sales of 19 billion euros, an
increase of eight percent compared to the same period of last
year. Main driver were higher volumes – primarily resulting from a
higher production of crude oil. Positive currency effects more than
offset lower prices.

 While Oil & Gas and Agricultural Solutions posted another strong
quarter, we saw a continuously weak development in our
chemical activities. As demand softened in some areas, volumes
in our chemical activities declined by one percent and prices fell
by four percent compared to Q3 2011.

 EBITDA amounted to 2.8 billion euros, up by four percent versus
the prior-year quarter.

rd

 EBIT before special items rose by roughly one hundred million
euros to 2.1 billion euros. The higher contribution from Oil & Gas
as well as our successful crop protection business were able to
more than offset lower earnings in our chemical activities.

 Special items in EBIT of minus 68 million euros resulted primarily
from planned restructuring measures.

 The tax rate increased to 46 percent due to the resumption of the
highly taxed oil production in Libya. As a result, net income
dropped by 246 million euros to 946 million euros.

 Adjusted earnings per share decreased 22 percent to 1.19
euros.

rd

[Chart 4: Ongoing portfolio optimization]

Over the past six weeks, we announced several important measures
to further optimize our portfolio, especially to further strengthen our
good performing Ag and Oil & Gas businesses:

 In September, we signed an agreement with Norwest Equity
Partners to acquire Becker Underwood for a price of roughly one
billion dollars. The company is a leading global provider of
technologies for biological seed treatment. With expected sales of
240 million dollars for the fiscal year 2012 and a strong
technology platform, the planned acquisition will further
strengthen our global crop protection business, particularly in the
rapidly growing seed treatment market. The purchase is subject to
approval by the relevant authorities and closing of the transaction
is expected by the end of 2012.

 In addition, we will invest more than 200 million euros in Germany
and the United States to scale up production and formulation
capacities for our successful fungicides F 500® and Xemium®.

 Beginning of October, we announced the restructuring of our
Construction Chemicals division to strengthen its competiveness
in Europe. We will adjust the business to declining markets,
especially in Southern Europe and Great Britain, by downsizing
our marketing and sales organization as well as by reducing
production capacities. In addition, we will enhance the overall
efficiency and customer focus by improving business processes in
Germany and Eastern Europe. The planned measures will affect
about 400 positions including portfolio optimizations. We will also
put some smaller non-core activities up for sale.

rd

 And, at the beginning of this week Statoil and BASF announced
an asset swap, which will increase our oil and gas production
footprint in Norway considerably. Wintershall will acquire equity in
the three producing fields Brage (32.7 percent), Gjøa (15 percent)
and Vega (30 percent) from Statoil, containing 2P reserves of
around 100 million barrels of oil equivalent. Through this
transaction we will raise our production in Norway from currently
around 3,000 boe to almost 40,000 boe per day. This will strongly
contribute to Wintershall’s operating cash flow and EBIT. In
return, Statoil will receive a 15 percent share in the development
field Edvard Grieg and a financial compensation of 1.35 billion
dollars. A potential payment of up to 100 million dollars will be
made dependent on additional volumes from the development of
the Vega field. The collaboration also includes important
technology-oriented topics such as joint research and projects on
Enhanced Oil Recovery (EOR) and the development of
unconventional deposits in Germany and internationally.

rd

[Chart 5: Outlook 2012 confirmed]
 For the fourth quarter of 2012, we do not anticipate an upturn in
the global economy and also do not expect demand to pick up for
our chemical activities. Prospects are clouded by continued
uncertainty, especially in the eurozone, and by slower growth in
Asia.

 We, therefore, have adjusted some of our expectations for the
global economy. For 2012, we now anticpate chemical
production growth at 2.9 percent, a reduction of 0.6 percentage
points. Our assumptions for the Brent oil price of 110 dollars per
barrel and the dollar/euro exchange rate of 1.30 remain
unchanged.

 We confirm our outlook for 2012: We aim to exceed the 2011
record levels in sales and income from operations before special
items.

 Our forecast is supported by the continuous crude oil production
in Libya and by our successful crop protection business. In our
chemical activities, earnings will not match the level of the
previous year, even if earnings in Q4 might be above the
relatively weak fourth quarter of last year.

 Ladies and gentlemen, as you know we continuously strive to
strengthen our competitveness and enhance our profitability. Our
operational excellence program STEP, which we announced at
the end of last year, is making good progress. By the end of
2015, it is expected to contribute around 1 billion euros to
earnings each year. STEP comprises more than 100 projects that
aim to lower costs and raise profit margins.

With this I’ll hand over to Hans.

rd

Hans-Ulrich Engel

Good morning ladies and gentlemen.
Let me highlight the financial performance of each segment in more
detail and focus on the respective business developments in
comparison to the third quarter of 2011.

[Chart 6: Chemicals – Declining margins and plant shutdowns]

In Chemicals, sales increased significantly mainly as a result of
recent portfolio measures. Feedstock sales to Styrolution Group
companies and to the new owner of the divested fertilizer business
contributed to the topline. In addition, higher volumes and currency
tailwinds more than compensated for lower prices. EBIT before
special items declined considerably compared to the strong prior-
year quarter – mainly due to lower margins as well as planned and
unplanned shutdowns.

 Sales in Petrochemicals increased. Slightly higher volumes,
feedstock sales to Styrolution and positive currency effects more
than offset a significant drop in selling prices. Demand for acrylics
and cracker products further weakened in Europe and Asia.
Higher raw material costs could not fully be passed on, putting
margins under severe pressure. EBIT before special items was
considerably lower due to weaker results mainly from cracker
products and acrylics as well as unplanned shutdowns of the Port
Arthur cracker.

rd

 In Inorganics, sales went up sharply. Main driver were feedstock
sales to the new owner of the divested fertilizer business, which
are now reported as third-party sales. Higher prices and volumes
also contributed to sales growth. EBIT before special items
increased primarily due to improved margins for inorganic base
chemicals.

 Continuous strong demand from important customer industries,
such as agrochemicals and plastics, as well as positive currency
effects led to higher sales in Intermediates. Prices, however,
declined and raw material cost increases could not fully be
passed on. Due to scheduled plant shutdowns, EBIT before
special items came in lower.

rd

[Chart 7: Plastics – Significantly weaker margins for polyamide
precursors]

Sales in Plastics increased driven by a positive business
development in Polyurethanes and by favorable currency effects.
EBIT before special items declined though, mostly due to a weaker
performance of polyamide precursors.

 In Performance Polymers, sales decreased slightly as positive
currency and portfolio effects did not fully compensate for lower
prices and volumes. Polyamide precursors, which were at record
price levels in Q3 of last year, continued to suffer from weak
demand and declining prices, in particular in Asia. In contrast, our
engineering plastics business developed positively thanks to
healthy demand from the automotive industry. Earnings,
nevertheless, fell sharply primarily as a result of weaker margins
for polyamide precursors.

 Sales in Polyurethanes grew significantly. Demand from the
automotive industry remained overall strong – in particular in Asia
and North America – while Europe developed slightly weaker.
Sales to the construction industry were below the prior-year
quarter. The market for basic products was tight. As a
consequence, we were able to increase volumes and prices for
both TDI and MDI. EBIT before special items rose substantially.

rd

[Chart 8: Performance Products – Competitive market
environment and higher fixed costs]

Sales in Performance Products came in slightly above the prior-
year quarter. Lower prices and volumes were offset by positive
currency effects. EBIT before special items was down primarily as a
result of higher cost for idle capacity and increased R&D expenses.

 In Dispersions & Pigments, sales rose slightly thanks to
favorable currency effects. Volumes declined slightly. While the
demand for resins and additives developed positively, we
experienced softer demand for dispersions and pigments. Due to
lower volumes for high-margin pigments and higher fixed costs,
EBIT before special items was significantly below the prior year
quarter.

 In Care Chemicals, sales did not reach the prior-year level
despite positive currency effects. A highly competitive market
environment led to declining volumes and prices. In particular, the
businesses with ingredients for personal care and home care
remained weak. EBIT before special items decreased
significantly.

 Sales in Nutrition & Health grew due to positive currency effects
and higher volumes. Demand improved in almost all businesses
while vitamin prices were under pressure. Increased raw material
costs could, however, only partially be passed on to customers,
resulting in lower margins. With higher fixed costs, EBIT before
special items was considerably below the good level of last year’s
third quarter.

rd

 In Paper Chemicals, sales did not match the prior year quarter
mainly due to lower prices. Volumes declined slightly. As a result
of operational and strategic measures, fixed costs were reduced
and EBIT before special items went up.

 In Performance Chemicals, sales rose thanks to positive
currency effects. Volumes were lower as strong demand for
oilfield and mining chemicals could not fully compensate for
weaker volumes in the other businesses. Due to our value-before-
volume strategy, EBIT before special items improved
considerably.

rd

[Chart 9: Functional Solutions – Lower volumes and prices in
precious metal trading]

Sales in Functional Solutions declined mainly due to a lower
contribution from precious metal trading. Currency tailwinds and
portfolio measures could not fully offset this effect. Due to high raw
material costs EBIT before special items came in lower.

 Catalysts’ sales declined primarily as a result of lower precious
metal prices and trading volumes. At 556 million euros, sales in
precious metal trading were down by almost 120 million euros
versus the prior-year quarter. We were able to further grow our
business with mobile emission catalysts due to strong demand
from the automotive industry. Positive currency effects as well as
the strengthened activities with battery materials also contributed
to the topline. EBIT before special items did not reach the good
level of Q3 2011 mostly as a result of high raw material cost.

 Sales in Construction Chemicals grew thanks to favorable
currency effects. While the construction activity in Southern
Europe stayed depressed, our business in North America
developed positively. Margins improved and EBIT before special
items went up.

 In Coatings, sales rose as a result of higher volumes and prices
as well as currency tailwinds. Demand from the automotive
industry remained strong in Asia and North America. We were
able to increase our sales both in automotive OEM and refinish
coatings. EBIT before special items was higher.

rd

[Chart 10: Agricultural Solutions – Successful start of season
in South America]

Agricultural Solutions had another very good quarter. Continued
strong demand led to a volume increase of three percent. Sales
grew by eleven percent, currency-adjusted by three percent. Overall,
prices were stable.

 The new season in South America started with significantly
higher sales than last year. Demand was strong in insecticides as
well as fungicides.

 In North America, sales grew considerably – primarily driven by
an excellent herbicide business. The drought in the Midwest of
the United States only had a moderate impact on our business in
2012.

 The autumn business in Europe developed positively. Strong
demand for fungicides and oilseed rape herbicides in Western
Europe more than offset the negative impact from the dry
weather conditions in Southern and Eastern Europe.

 In Asia, sales declined due to the delayed onset of the monsoon
season in South Asia. In China, though, our business benefited
from higher fungicide sales.

 EBIT before special items rose sharply and was a new record for
a third quarter.

 Year-to-date earnings also posted a new record and reached for
the first time one billion euros – thus, topping the full-year 2011
figure by almost 200 million euros.

rd

[Chart 11: Oil & Gas – Increased oil production in Libya]

Sales in Oil & Gas grew strongly mainly driven by higher volumes in
Exploration and Production due to the continuous production in
Libya. As a result, EBIT before special items tripled compared to the
prior year third quarter.

 Sales in Exploration & Production more than doubled due to
higher volumes and prices. While in Q3 of last year the oil
production in Libya was suspended, we produced in our onshore
concessions on average about 85,000 barrels of oil per day in this
year’s third quarter – significantly more than originally planned.
The oil price increased in euro terms by roughly seven euros to
88 euros per barrel compared to the respective prior-year quarter.
Earnings rose sharply.

 In Natural Gas Trading, sales grew considerably driven by
higher volumes on European spot trading markets. Earnings,
however, declined compared to last year’s quarter, which had
benefited from a one-time gain from contract adjustments with
customers. Concession income from the OPAL pipeline could
only partly offset this effect.

 Non-compensable taxes on oil production were 492 million euros.

 Net income amounted to 322 million euros, an increase of almost
one hundred million euros versus Q3 of last year.

rd

[Chart 12: Review of “Other”]

‘Other’ posted a decline in sales, largely as a result of the
divestiture of our Styrenics business, which was contributed to the
Styrolution joint venture as of October 1, 2011.

EBIT before special items declined significantly. In addition to the
missing contribution from Styrenics, higher provisions for the long-
term incentive program – which resulted from the significant share
price increase – negatively impacted earnings. For your reference,
in the third quarter of 2011, we had reported a reversal of provisions
for the long-term incentive program, which led to an earnings
increase.

rd

[Chart 13: Strong operating cash flow of €5.2 billion]

Let me now briefly conclude with our cash flow.

 We generated again a very strong operating cash flow in the first
nine months of 5.2 billion euros – thereof 1.7 billion euros coming
from the third quarter. In Q3, net working capital remained
unchanged compared to mid-year.

 In the first nine months, we used 2.1 billion euros in investing
activities. Capex amounted to 2.8 billion euros, almost 700 million
euros above the same period of 2011.

 Free cash flow reached 2.4 billion euros in the first nine months of
this year compared to 2.9 billion euros in the same period of last
year.

 At 11 billion euros, net debt was at the level of the end of 2011,
but decreased by 600 million year-over-year.

Thank you for your attention. We are now happy to take your

questions.

BASF Q3 2012 Earnings Call Summary

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to BASF Q3 2012 Earnings Call Summary

Similar to BASF Q3 2012 Earnings Call Summary (20)

More from BASF

More from BASF (20)

Recently uploaded

Recently uploaded (20)

BASF Q3 2012 Earnings Call Summary